The lack of financial education in the school system prevents students from succeeding in the modern world. Instead of teaching students how to start a business, make money online, invest in real estate, etc., the school system focuses on subjects that prepare students for a 9-5 job.
The old-age schooling concept of using school as a place to train “workers” is outdated. Instead, schools need to update their curriculums to provide students with the best resources possible for creating success. For example, curriculums should include valuable skills that teach students to use their talents and passions to build a business instead of defaulting to a 9-5 job. In conjunction with a basic curriculum, these resources would prevent students from surrendering to the rat race and living unfulfilled lives.
So, to help you create success in your life, I rounded up five critical financial lessons you weren’t taught in school. In my own journey of building multiple successful businesses, I learned what type of education children need to become successful and implemented it in my own life.
1. Not All Debt is Bad
When people hear the word “debt,” they automatically think it’s bad to have debt. The idea that debt is bad has been drilled into our brains by our parents, family members, peers, and the media. However, there are actually two kinds of debt – good debt and bad debt.
There is such a thing as good debt. You use good debt by taking out a loan to purchase assets, such as a house, education, a business loan, or rental properties. This debt is considered good because these purchases appreciate in value over time. For example, a house goes up in value every year (usually), especially if you put equity into your home to increase the value. Another example is a business loan. Taking out a loan to start a business that generates money over time is an asset.
Bad debt refers to a car loan, credit card debt, store credit, and cash advances. These loans are considered bad debt because they reduce your net worth and do not generate wealth over time. You want to avoid bad debt as much as possible when trying to become wealthy.
2. Don’t Keep All Your Money in Savings
The financial rule of thumb is to put 10% of your monthly income into a savings account. However, you should only do that if you have nothing in your savings. Once you hit the threshold of around $6,000 in expenses, stop putting your money into savings.
Instead, put the money you would typically save into investment accounts such as index funds and Roth IRAs. An index fund is an investment account that mimics a financial market, such as the S&P 500. Index funds have very low risk and are a great way to generate passive income. A Roth IRA is a retirement account that you invest in monthly and are eligible to take tax-free money out of at 59 ½ years old.
3. Don’t Succumb to Lifestyle Inflation
Lifestyle inflation refers to getting a raise or a job with higher pay, and you start spending more because you’re “making more.” However, your annual raise and income are usually less than the inflation rate, which means you’re actually losing money.
When you succumb to lifestyle inflation, especially as a single 20-something, you’re setting yourself up for failure. Your 20s and 30s are when you should be putting as much money as possible into investments and assets to grow your net worth.
Living Below Your Means
The best way to avoid lifestyle inflation is to live below your means. Living below your means refers to reducing your expenses, increasing your income, and investing your money to increase your net worth. For example, instead of buying a brand new car when you get a raise, keep your old car or buy a used car in cash. This way, you don’t have a brand-new car payment sucking up the “raise” you just got.
4. Don’t Get a 15-Year Mortgage
You’ve probably been told by your parents or peers that a 15-year mortgage is better because you can pay it off quicker. However, most people live in their homes for an average of 13 years, which means you’re paying a higher mortgage for a house you’re not going to live in for 15 years. On the other hand, if you get a 30-year mortgage, you pay less per month on your mortgage, which minimizes your expenses.
Let’s say you’re buying your first home. You’re probably not going to live in that house for 15 or even 30 years. So, it doesn’t make sense to increase your monthly payment. I suggest you take the difference between a 15 and a 30-year mortgage monthly payment and invest the difference each month. For example, a 15-year mortgage might be $2,000, and a 30-year mortgage might be $1,000. Take that extra $1,000 and invest it monthly. As a result, you’ll have millions of dollars in net worth in 30 years.
5. Purchase a Rental Property ASAP
Purchasing a rental property as soon as possible is one of the most valuable investments you can make. If you follow the tips above, you’ll have enough money set aside to purchase a rental property, rent it out, and generate passive income every month. Real estate is a highly lucrative asset because it appreciates over time. In addition, you can deduct the mortgage interest, operating expenses, property depreciation, and ownership expenses on your tax return to reduce your taxable income.
Don’t let the weaknesses of the education system derail your chances of creating success. Follow these financial tips and start unlocking your potential as soon as possible.